QVC's Manual for Survival in the Amazon Era

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”Read More.

Yesterday,I remarked in passing that what Amazon.com has done to QVC Inc. was a fascinating topic for a separate post. Well, at least a few of you seem to be fascinated, so here goes.

About 10 years ago, when I got interested in QVC, it frequently had the best prices around for appliances and electronics (two categories that are easy to comparison-shop). QVC had massive scale compared with other retailers; it could move tens of thousands of units of a product over the course of a day. That kept average costs low, which meant that its prices were very competitive, even if you accounted for shipping. I kept track of its "Today's Special Value," or TSV, which is what QVC called its loss leaders, and occasionally I bought something that was dramatically cheaper than where I could find it elsewhere. For example, I got KitchenAid's top hand mixer with extra accessories for $10 to $20 less than I could find it anywhere else.

I'm told by those who worked with companies that dealt with QVC that often these loss leaders were sold by the manufacturer at close to, or even below, cost, because they viewed it as advertising. QVC was the best place -- almost the only cost-effective place -- to sell a product like a Vitamix blender that requires extensive demonstration to explain why you should be willing to pay $500 for a blender.

Amazon has turned products like these into commodities. Here you have a reputable retailer that will sell very close to cost and ship it to you for free, as long as you pay $75 for a membership. QVC could not afford to match this; it's basically a mature business, not a fast-growing tech company that people hope will eventually earn monopoly-level profits. So it has had to get very creative to keep its revenue growing.

How have they done it? Curation, cultivating personalities, demonstration and differentiation.

You don't have to figure out which of 90,000 vacuum cleaners you want; QVC has a few, and you choose the one that best fits your needs. Its buyers will weed out the true dogs, especially if people complain. QVC is especially good at curation with jewelry.

When it comes to the second strategy, home shopping networks have always cultivated what psychologists call "parasocial relationships": the illusion that you are having a social experience with someone on television. That is, for example, why there is almost always a QVC host and a product representative on the screen; it creates the feeling of a conversation in which you are being included. When I toured QVC's headquarters, a lot of the people on the tour had amazing, encyclopedic knowledge of all the hosts, past and present. "She talks about them like they're her friends," said one exasperated granddaughter.

But home shopping networks have never wanted the hosts to get too big. The hosts are decently paid -- low six figures on average, from what I was able to gather -- and they tend to live in small towns where that goes a long way. But the home shopping networks have deliberately discouraged them from getting too big, because that gives them negotiating power over the networks. There has been some suggestion that hosts who got too popular were often fired before their popularity got big enough to let them make big financial demands. (I'm talking here about presenters, not celebrities such as Joan Rivers or Isaac Mizrahi, who presumably extract all they can get.)

That has now obviously changed. QVC's biggest host is David Venable, who basically owns the kitchen category. His predecessor was allegedly fired (allowing David to take over). Venable, on the other hand, has been allowed -- maybe even encouraged -- to expand. His kitchen show grew from a couple of hours on Sunday to three or four or five hours, plus more time on Wednesday night. He has written a cookbook that is sold through regular bookstores. Now, I don't know what the financial arrangements are on that cookbook -- QVC probably gets a big cut. But the point is, the network has encouraged him to take the spotlight in a way that didn't used to happen. He's not alone, either; QVC is building up some of its longest-running hosts with regular shows. QVC is less and less supposed to be something that you watch incidentally, when you have spare time; it's supposed to be scheduled viewing with your favorite hosts. It's even experimenting with advance production on one of the home-goods shows.

This is all bolstered with social media -- it now has producers and staffers assigned to tweet and chat with viewers in real time on Facebook during these shows. All of the hosts have blogs, which they're expected to update regularly. Recent posts include one host sharing everything about taking a pregnancy test and another talking about a good friend's recovery from cancer treatment.

The result is fantastic brand loyalty: People buy from QVC because they feel a personal affinity with the hosts. It's tempting to think this is abusive, because boy, are those hosts good at selling. But going on a tour with some of their most fanatic fans made me see it differently. Those people weren't unaware that they were being sold; they liked it. They trusted the hosts not to lie to them (one of Venable's greatest assets is his theatrical, but apparently genuine, love of anything sweet or cheesy or otherwise bad for you). But they aren't under any illusions about what they're being paid for.

And, in fact, those hosts do provide some value that is still hard to get elsewhere (though not as much as it was): They demonstrate products that might be hard to understand, and they ask the obvious questions. Now, product demos can be a bit silly (I would love to meet the engineer who comes up with weird ways to demo vacuum cleaners). But it's genuinely useful to see how a kitchen appliance works; without that demonstration, you might not be willing to order it. That's why QVC does so many deals with companies like Vitamix.

The fourth strategy that QVC is leaning hard on is differentiation. This takes two forms: private-label and exclusive product lines, which are ever proliferating, and developing bundles to sell commodity products at noncommodity prices. For example, it recently had an iPad TSV. IPads are a commodity; QVC doesn't get a better price than any other retailer. So it packaged them with a bunch of aftermarket products such as cases and headphones that probably didn't cost much to direct-order from China, but it allowed QVC to claim to be offering a bargain. As their TSVs have gotten less and less competitive with Amazon, more and more of these bundles are appearing.

From all this, you may infer that I watch too much QVC. To which I plead guilty -- I've long been obsessed with sales techniques and merchandising, and QVC is pretty much the best in the business. But it's also a case study in how you can manage to survive in the Amazon era: by looking hard at your product mix, developing deeper relationships with your customers, and focusing on areas -- such as product demos and exclusive product lines -- that Amazon still finds it hard to match.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”Read more